PEER COMPANIES

Loading data...

PEER COMPANIES

Mumbai: Two public sector defence firms are hitting the capital markets to raise nearly Rs 6,000 crore in the first such IPOs in the defence sector after nearly three decades.

Hindustan Aeronautics, which makes military aircraft and helicopters, is planning to raise about Rs 4,000 crore while defence equipment maker Bharat Dynamics is estimated to raise about Rs 1,800 crore, according to bankers.

“Road shows for both these IPOs are already begun and there was an overwhelming response for them from both domestic and foreign institutional investors as both these companies are unique in nature with no domestic competitors,” said an investment banker associated with the public offers.

There are nine central public sector undertakings under the administrative control of the Department of Defence Production, Ministry of Defence, of which Hindustan Aeronautics is the biggest. BEML was the first defence PSU to be listed followed by Bharat Electronics.

Despite a volatile secondary market, both of these IPOs will get a good response especially from institutions as the valuations in secondary market are stretched, said bankers.

“There is a good demand for the quality companies especially from the domestic institutions as secondary market is more volatile and fairly priced,” said V Jayashankar, Sr Executive Director & Head of Equity, Kotak Investment Bank.

HAL, which reported a revenue of Rs 17,952 crore and net profit of Rs 2,625 crore for the year ended March 2017, filed its draft prospectus to the capital market regulator, Securities and Exchange Board of India in October last year. The company which is planning to sell 3.615 crore equity shares of a face value Rs 10 is valued at Rs 40,000 crore ($ 6.4 billion). Though there are no competitors for HAL in India, its global peers like Boeing Co and Airbus SE are valued at $ 204 billion and $ 64 billion respectively.

Bharat Dynamics filed its draft prospectus with Sebi in January. The issue is an offer from sale from the promoter, the government of India, which seeks to sell over 22 million shares representing around 13% stake in the company.

“There is no company like BDL in India so a peer comparison is not possible. BEL is on similar lines so we have compared are business to them for valuation,” Chairman and Managing Director V Udaya Bhaskar told ET.

BDL posted a net profit of Rs 172.59 crore for the six months ended September 2017 on revenues (from operations) of Rs 1,805.68 crore during the same period, according to the draft prospectus. Its net profit was Rs 490.31 crore in full year 2016-17 and Rs 562.06 crore in the previous year.

Private sector has made big investments in the defence sector, but for most companies, like Larsen & Toubro and Reliance Infrastructure, it is a part of their diversified portfolio. While the government has been encouraging competition in the sector, the public sector companies have an edge over the private players given their track record and preferred partner status.

Offers for sale of HAL and BDL are part of the government disinvestment target for the current financial year. The government has, for the first time in India’s history, beaten its own disinvestment target, raising about Rs 92,000 crore by selling its stake in state run companies as against the budgeted Rs 72,500 crore.